Two Ways Estate Agents Take Advantage of Landlords
Updated: Jan 25
Providing an answer to the cartel-like behaviour of estate agents in the property rental market
We begin with an old joke…
Q: Why have estate agents stopped looking out of the window in the morning?
A: Because otherwise they’d have nothing to do in the afternoon!
Taking a swing at estate agents for hardly working is nothing new. Anyone who has ever rented property with the aid of an estate agent knows that it‘s a costly exercise to find a tenant and simply extortionate to have it managed – but how much work really goes into these activities? How do these firms demonstrate their value? Are these services worth it? What are the alternatives?
Committing to purchase property is one of the largest investments that you will ever make. And if you’re looking to capitalise on that through renting then estate agent fees will quickly pile up around you. They fall into two main categories: Tenant Placement Fees and Property Management Charges. Let’s look at each in detail, break them down and show how you combat over-spending – saving you money and improving your returns.
Tenant Finding / Placement
The first step is to market your property and show it to prospective renters. Most estate agents will tell you that they keep an “active list of clients” looking to rent in the area. They’ll tout this as the primary reason why they’re qualified to secure an occupant for your property (but actual matches that lead to signed contracts rarely occur). Once a tenant is selected, an estate agent can also help with reference checks as well as collection of the first month’s rent and security deposit.
The fee for this service is usually one month’s rent, that’s 8% of the total rent that will be collected over a year. At some point you’d be smart to ask: Is it worth it and what are my other choices?
Let’s put some numbers around this. In central London, a one bedroom flat rents for approximately £2,300 per month; this is also the money you will pay for an estate agent to find a tenant.
If you’re looking for a cost effective alternative, there are options available to you:
OpenRent will list your property on all the major real estate websites (RightMove, Zoopla and more), create a Lease Agreement for you and collect the first month’s rent – all for £49.
RentGuard (a service provided through OpenRent) can look after full tenant referencing for £20 per applicant.
Pictures and a floorplan can usually be reused from when you purchased the property and, if that’s not an option, numerous firms can do this for around £200.
If we tally all that up it brings our total to £269.
The last piece is showing the property. You can do this yourself, but if that’s not an option then local Home Administration or Personal Assistant firms can help. They usually charge an hourly or per viewing rate for their services.
At Heyworth Gordon we charge £100 per viewing and we include the time it takes to list the property on OpenRent, as well as handle all tenant inquiries for free, when you sign with us. In our experience, you don’t need to show a property more than 10 times to get it rented:
10 viewings at a cost of £100 per viewing comes to £1000
If we add that to the £269 mentioned above it brings our total to £1,269. Remember, estate agents charge £2300 for this, almost twice the price. Equivalently, we would need to show your property 24 times to get the fee that high – but, we believe in our process so much that we cap our tenant placement fee at £1000. So, even if it does take 24 viewings, you only pay for 10.
Proof is in the pudding, same result achieved and £1,031 saved!
The management agent will be the key point of communication between the owner of the property and the tenants renting it. Once the tenant is in place, this job includes organising necessary repairs with tradesmen, periodically inspecting the property and providing notice at the end of a tenancy. Ideally, property managers should be up to date with the most recent regulations that govern lettings with a qualification from an outside agency (such as Residential Landlords Association), but this is not a legal requirement.
The estate agent charge to perform these duties around 7% of the total rent collected. This property management service usually goes hand in hand with the 8% tenant placement fee mentioned above, bringing the total estate agent charge to 15% of the annual rent. Taking the above example, the numbers breakdown as follows:
£2300 per month x 12 months = £27,600
Estate agents take 15% of £27,600 = £4,140
No matter which way you look at it, paying out 15% of your earnings every year is a lot of money. And once again, we find that firms are charging fees based upon the amount of money that owners collect and not based upon the work that they do. Why? The truth is because they can….. there’s no good reason why the fees are structured this way. They’ve always been organised as such and so they seem to trundle on.
At Heyworth Gordon we take a different approach. We don’t believe it’s fair to charge our clients based upon how much money they make, as this doesn’t reflect the work we do to help maintain a property. Instead, we know that the size of the property directly relates to how much time is needed to maintain it. Our charge is 14 pence a square foot – that’s it.
But how much money does that actually save? A good sized flat in London is 1,000 sqft, which we will use for our calculation:
1,000sqft managed at 0.14p per sqft = £140 per month
£140 per month x 12 months = £1,680 per year
£1,680 property management fee + £1,019 tenant placement charge = £2,699
£4,140 charge from an estate agent versus a £2,699 personalised alternate service. Saving you a total of £1,441 in your first year - increasing your profit by 35%!
It’s important that you find a service that is flexible and forms itself around your needs as a property owner. Be bold, ask questions and don’t settle. If you hand over responsibility then be sure who is accountable and how they will manage issues that arise. Quality management options are available to you if you want them.
Our company, Heyworth Gordon, has successfully rented and managed dozens of properties around London using this method. We are able to offer lower price points because we do not maintain a physical, bricks and mortar, storefront. Instead, we meet clients wherever is convenient for them: home, rental property, work (when not in lockdown, of course). This light and agile way of working allows us to pass the savings on to our clients directly.
If you’re in London and looking for information on tenant placement, property management or a more personalised service, please get in touch with us: email@example.com
Image Credit: Tierra Mallorca